| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | ||
(State or other jurisdiction of incorporation or organization) | Identification No.) | |
Title of Each Class | Trading Symbol(s) | Name of Exchange on which registered | ||
Common Stock ($.10 Par Value) | GENC |
| Large accelerated filer | ☐ | Accelerated Filer | ☐ | |||
Non-accelerated Filer | ☒ | Smaller Reporting Company | ☒ | |||
| Emerging Growth Company | ☐ | |||||
Class | Outstanding at | |
| Common | 12,338,845 shares | |
Class B | 2,318,857 shares | |
GENCOR INDUSTRIES, INC.
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| Legal Proceedings | 22 | |||||||||
| Risk Factors | 22 | |||||||||
| Exhibits | ||||||||||
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2
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form
For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form
Unless the context otherwise indicates, all references in this Quarterly Report to the “Company,” “Gencor,” “we,” “us,” or “our,” or similar words are to Gencor Industries, Inc. and its subsidiaries.
3
December 31, 2022 (Unaudited) | September 30, 2022 | |||||||||||||||
March 31, 2022 (Unaudited) | September 30, 2021 | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 22,571,000 | $ | 23,232,000 | $ | 5,978,000 | $ | 9,581,000 | ||||||||
Marketable securities at fair value (cost of $94,746,000 at March 31, 2022 and $93,690,000 at September 30, 2021) | 94,501,000 | 94,976,000 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $349,000 at March 31, 2022 and $321,000 at September 30, 2021 | 3,924,000 | 2,622,000 | ||||||||||||||
Marketable securities at fair value (cost of $94,965,000 at December 31, 2022 and $94,879,000 at September 30, 2022) | 91,718,000 | 89,300,000 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $442,000 | 4,659,000 | 2,996,000 | ||||||||||||||
Costs and estimated earnings in excess of billings | 1,629,000 | 1,903,000 | 4,950,000 | 2,118,000 | ||||||||||||
Inventories, net | 47,222,000 | 41,888,000 | 59,315,000 | 55,815,000 | ||||||||||||
| Prepaid expenses and other current assets | 3,756,000 | 2,202,000 | 2,633,000 | 2,669,000 | ||||||||||||
Total current assets | 173,603,000 | 166,823,000 | 169,253,000 | 162,479,000 | ||||||||||||
Property and equipment, net | 12,205,000 | 11,801,000 | 13,334,000 | 13,491,000 | ||||||||||||
Deferred and other income taxes | 2,403,000 | 2,893,000 | ||||||||||||||
Other long-term assets | 711,000 | 838,000 | 346,000 | 450,000 | ||||||||||||
Total Assets | $ | 186,519,000 | $ | 179,462,000 | $ | 185,336,000 | $ | 179,313,000 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 5,741,000 | $ | 3,105,000 | $ | 4,385,000 | $ | 4,251,000 | ||||||||
Customer deposits | 10,286,000 | 5,244,000 | 8,387,000 | 5,864,000 | ||||||||||||
Accrued expenses | 2,442,000 | 2,645,000 | 1,878,000 | 1,885,000 | ||||||||||||
Current operating lease liabilities | 407,000 | 393,000 | 293,000 | 390,000 | ||||||||||||
Total current liabilities | 18,876,000 | 11,387,000 | 14,943,000 | 12,390,000 | ||||||||||||
Deferred and other income taxes | 0 | 394,000 | ||||||||||||||
Non-current operating lease liabilities | 189,000 | 392,000 | — | 6,000 | ||||||||||||
Total liabilities | 19,065,000 | 12,173,000 | 14,943,000 | 12,396,000 | ||||||||||||
Commitments and contingencies | 0 | 0 | ||||||||||||||
Shareholders’ equity: | ||||||||||||||||
Preferred stock, par value $.10 per share; 300,000 shares authorized; 0ne issued | 0— | 0— | ||||||||||||||
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,338,845 shares issued and outstanding at March 31, 2022 and September 30, 2021 | 1,234,000 | 1,234,000 | ||||||||||||||
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at March 31, 2022 and September 30, 2021 | 232,000 | 232,000 | ||||||||||||||
Preferred stock, par value $.10 per share; 300,000 shares authorized; none issued | — | — | ||||||||||||||
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,338,845 shares issued and outstanding at December 31, 2022 and September 30, 2022 | 1,234,000 | 1,234,000 | ||||||||||||||
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at December 31, 2022 and September 30, 2022 | 232,000 | 232,000 | ||||||||||||||
Capital in excess of par value | 12,590,000 | 12,590,000 | 12,590,000 | 12,590,000 | ||||||||||||
Retained earnings | 153,398,000 | 153,233,000 | 156,337,000 | 152,861,000 | ||||||||||||
Total shareholders’ equity | 167,454,000 | 167,289,000 | 170,393,000 | 166,917,000 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 186,519,000 | $ | 179,462,000 | $ | 185,336,000 | $ | 179,313,000 | ||||||||
2022 | 2021 | |||||||
Net revenue | $ | 25,825,000 | $ | 20,106,000 | ||||
Cost of goods sold | 20,010,000 | 16,401,000 | ||||||
Gross profit | 5,815,000 | 3,705,000 | ||||||
Operating expenses: | ||||||||
Product engineering and development | 897,000 | 1,349,000 | ||||||
Selling, general and administrative | 2,799,000 | 3,399,000 | ||||||
Total operating expenses | 3,696,000 | 4,748,000 | ||||||
Operating income (loss) | 2,119,000 | (1,043,000 | ) | |||||
Other income, net: | ||||||||
Interest and dividend income, net of fees | 493,000 | 277,000 | ||||||
Realized and unrealized gains on marketable securities, net | 1,962,000 | 423,000 | ||||||
| 2,455,000 | 700,000 | |||||||
Income (loss) before income tax expense (benefit) | 4,574,000 | (343,000 | ) | |||||
Income tax expense (benefit) | 1,098,000 | (69,000 | ) | |||||
Net income (loss) | $ | 3,476,000 | $ | (274,000 | ) | |||
Basic income (loss) per common share | $ | 0.24 | $ | (0.02 | ) | |||
Diluted income (loss) per common share | $ | 0.24 | $ | (0.02 | ) | |||
For the Quarters Ended March 31, | For the Six Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net revenue | $ | 30,654,000 | $ | 21,352,000 | $ | 50,760,000 | $ | 40,316,000 | ||||||||
Cost of goods sold | 24,462,000 | 15,206,000 | 40,863,000 | 31,189,000 | ||||||||||||
Gross profit | 6,192,000 | 6,146,000 | 9,897,000 | 9,127,000 | ||||||||||||
Operating expenses: | ||||||||||||||||
Product engineering and development | 920,000 | 1,069,000 | 2,269,000 | 1,914,000 | ||||||||||||
Selling, general and administrative | 3,364,000 | 3,838,000 | 6,763,000 | 7,032,000 | ||||||||||||
Total operating expenses | 4,284,000 | 4,907,000 | 9,032,000 | 8,946,000 | ||||||||||||
Operating income | 1,908,000 | 1,239,000 | 865,000 | 181,000 | ||||||||||||
Other income (expense), net: | ||||||||||||||||
Interest and dividend income, net of fees | 296,000 | 327,000 | 573,000 | 1,130,000 | ||||||||||||
Net realized and unrealized gains (losses) on marketable securities, net | (1,488,000 | ) | 1,294,000 | (1,065,000 | ) | 3,488,000 | ||||||||||
Other | (137,000 | ) | — | (137,000 | ) | — | ||||||||||
| (1,329,000 | ) | 1,621,000 | (629,000 | ) | 4,618,000 | |||||||||||
Income before income tax expense | 579,000 | 2,860,000 | 236,000 | 4,799,000 | ||||||||||||
Income tax expense | 140,000 | 572,000 | 71,000 | 960,000 | ||||||||||||
Net income | $ | 439,000 | $ | 2,288,000 | $ | 165,000 | $ | 3,839,000 | ||||||||
Basic income per common share | $ | 0.03 | $ | 0.16 | $ | 0.01 | $ | 0.26 | ||||||||
Diluted income per common share | $ | 0.03 | $ | 0.16 | $ | 0.01 | $ | 0.26 | ||||||||
For the Six Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
| Common Stock | Class B Stock | Capital in Excess of | Retained | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Par Value | Earnings | Equity | ||||||||||||||||||||||
September 30, 2021 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 153,233,000 | $ | 167,289,000 | ||||||||||||||||
Net loss | — | — | — | — | — | (274,000 | ) | (274,000 | ) | |||||||||||||||||||
December 31, 2021 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 152,959,000 | $ | 167,015,000 | ||||||||||||||||
Net income | — | — | — | — | — | 439,000 | 439,000 | |||||||||||||||||||||
March 31, 2022 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 153,398,000 | $ | 167,454,000 | ||||||||||||||||
For the Quarter Ended December 31, 2022 | ||||||||||||||||||||||||||||
Common Stock | Class B Stock | Capital in Excess of | Retained | Total Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Par Value | Earnings | Equity | ||||||||||||||||||||||
September 30, 2022 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 152,861,000 | $ | 166,917,000 | ||||||||||||||||
Net income | — | — | — | — | — | 3,476,000 | 3,476,000 | |||||||||||||||||||||
December 31, 2022 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 156,337,000 | $ | 170,393,000 | ||||||||||||||||
For the Six Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
| Common Stock | Class B Stock | Capital in Excess of | Retained | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Par Value | Earnings | Equity | ||||||||||||||||||||||
September 30, 2020 | 12,287,337 | $ | 1,229,000 | 2,318,857 | $ | 232,000 | $ | 12,331,000 | $ | 147,428,000 | $ | 161,220,000 | ||||||||||||||||
Net income | — | — | — | — | — | 1,551,000 | 1,551,000 | |||||||||||||||||||||
December 31, 2020 | 12,287,337 | $ | 1,229,000 | 2,318,857 | $ | 232,000 | $ | 12,331,000 | $ | 148,979,000 | $ | 162,771,000 | ||||||||||||||||
Net income | — | — | — | — | — | 2,288,000 | 2,288,000 | |||||||||||||||||||||
Stock options exercised | 11,000 | 1,000 | — | — | 55,000 | — | 56,000 | |||||||||||||||||||||
March 31, 2021 | 12,298,337 | $ | 1,230,000 | 2,318,857 | $ | 232,000 | $ | 12,386,000 | $ | 151,267,000 | $ | 165,115,000 | ||||||||||||||||
For the Quarter Ended December 31, 2021 | ||||||||||||||||||||||||||||
Common Stock | Class B Stock | Capital in Excess of | Retained | Total Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Par Value | Earnings | Equity | ||||||||||||||||||||||
September 30, 2021 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 153,233,000 | $ | 167,289,000 | ||||||||||||||||
Net loss | — | — | — | — | — | (274,000 | ) | (274,000 | ) | |||||||||||||||||||
December 31, 2021 | 12,338,845 | $ | 1,234,000 | 2,318,857 | $ | 232,000 | $ | 12,590,000 | $ | 152,959,000 | $ | 167,015,000 | ||||||||||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 165,000 | $ | 3,839,000 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Purchase of marketable securities | (68,803,000 | ) | (54,048,000 | ) | ||||
Proceeds from sale and maturity of marketable securities | 68,043,000 | 53,067,000 | ||||||
Change in value of marketable securities | 1,235,000 | (3,167,000 | ) | |||||
Deferred and other income taxes | (456,000 | ) | 501,000 | |||||
Depreciation and amortization | 1,299,000 | 1,210,000 | ||||||
Provision for doubtful accounts | 75,000 | 25,000 | ||||||
| Changes in assets and liabilities, excluding the initial effects of business acquisitions: | ||||||||
Accounts receivable | (1,377,000 | ) | (1,576,000 | ) | ||||
Costs and estimated earnings in excess of billings | 274,000 | 6,405,000 | ||||||
| Inventories | (5,334,000 | ) | (629,000 | ) | ||||
| Prepaid expenses and other current assets | (1,554,000 | ) | (15,000 | ) | ||||
Accounts payable | 2,636,000 | 969,000 | ||||||
Customer deposits | 5,042,000 | 2,173,000 | ||||||
Accrued expenses | (200,000 | ) | 529,000 | |||||
Total adjustments | 880,000 | 5,444,000 | ||||||
Cash flows provided by operating activities | 1,045,000 | 9,283,000 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of Blaw-Knox assets | — | (13,777,000 | ) | |||||
Capital expenditures | (1,706,000 | ) | (1,729,000 | ) | ||||
Cash flows used in investing activities | (1,706,000 | ) | (15,506,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from stock option exercises | — | 56,000 | ||||||
Cash flows provided by financing activities | — | 56,000 | ||||||
Net decrease in cash and cash equivalents | (661,000 | ) | (6,167,000 | ) | ||||
Cash and cash equivalents at: | ||||||||
| Beginning of period | 23,232,000 | 35,584,000 | ||||||
| End of period | $ | 22,571,000 | $ | 29,417,000 | ||||
Non-cash investing and financing activities: | ||||||||
Operating lease right-of-use | $ | — | $ | 254,000 | ||||
Operating lease liabilities | $ | — | $ | 254,000 | ||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 3,476,000 | $ | (274,000 | ) | |||
| Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||
Purchase of marketable securities | (42,080,000 | ) | (35,718,000 | ) | ||||
Proceeds from sale and maturity of marketable securities | 41,427,000 | 35,326,000 | ||||||
Change in value of marketable securities | (1,765,000 | ) | (314,000 | ) | ||||
Deferred and other income taxes | 490,000 | 13,000 | ||||||
Depreciation and amortization | 705,000 | 750,000 | ||||||
Provision for doubtful accounts | 75,000 | 75,000 | ||||||
| Loss on disposal of assets | 157,000 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (1.738,000 | ) | (829,000 | ) | ||||
Costs and estimated earnings in excess of billings | (2,832,000 | ) | 678,000 | |||||
Inventories | (3,500,000 | ) | (3,846,000 | ) | ||||
Prepaid expenses and other current assets | 36,000 | (1,170,000 | ) | |||||
Accounts payable | 134,000 | 1,350,000 | ||||||
Customer deposits | 2,523,000 | 3,453,000 | ||||||
Accrued expenses and other | (6,000 | ) | (475,000 | ) | ||||
Total adjustments | (6,374,000 | ) | (707,000 | ) | ||||
| Cash flows used in operating activities | (2,898,000 | ) | (981,000 | ) | ||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (705,000 | ) | (1,003,000 | ) | ||||
Cash flows used in investing activities | (705,000 | ) | (1,003,000 | ) | ||||
| Net decrease in cash and cash equivalents | (3,603,000 | ) | (1,984,000 | ) | ||||
Cash and cash equivalents at: | ||||||||
Beginning of period | 9,581,000 | 23,232,000 | ||||||
End of period | $ | 5,978,000 | $ | 21,248,000 | ||||
Non-cash investing and financing activities: | ||||||||
Operating lease right-of-use | $ | — | $ | 39,000 | ||||
Operating lease liabilities | $ | — | $ | 39,000 | ||||
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equities | $ | 19,998,000 | $ | 0 | $ | 0 | $ | 19,998,000 | ||||||||
Mutual Funds | 10,130,000 | 0 | 0 | 10,130,000 | ||||||||||||
Exchange-Traded Funds | 9,849,000 | 0 | 0 | 9,849,000 | ||||||||||||
Corporate Bonds | 0 | 24,022,000 | 0 | 24,022,000 | ||||||||||||
Government Securities | 27,960,000 | 0 | 0 | 27,960,000 | ||||||||||||
Cash and Money Funds | 2,542,000 | 0 | 0 | 2,542,000 | ||||||||||||
Total | $ | 70,479,000 | $ | 24,022,000 | $ | 0 | $ | 94,501,000 | ||||||||
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equities | $ | 5,524,000 | $ | — | $ | — | $ | 5,524,000 | ||||||||
Mutual Funds | 5,423,000 | — | — | 5,423,000 | ||||||||||||
Exchange-Traded Funds | 4,825,000 | — | — | 4,825,000 | ||||||||||||
Corporate Bonds | — | 36,697,000 | — | 36,697,000 | ||||||||||||
Government Securities | 33,925,000 | — | — | 33,925,000 | ||||||||||||
Cash and Money Funds | 5,324,000 | — | — | 5,324,000 | ||||||||||||
Total | $ | 55,021,000 | $ | 36,697,000 | $ | — | $ | 91,718,000 | ||||||||
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equities | $ | 14,734,000 | $ | 0 | $ | 0 | $ | 14,734,000 | ||||||||
Mutual Funds | 10,357,000 | 0 | 0 | 10,357,000 | ||||||||||||
Exchange-Traded Funds | 9,458,000 | 0 | 0 | 9,458,000 | ||||||||||||
Corporate Bonds | 0 | 24,853,000 | 0 | 24,853,000 | ||||||||||||
Government Securities | 30,999,000 | 0 | 0 | 30,999,000 | ||||||||||||
Cash and Money Funds | 4,575,000 | 0 | 0 | 4,575,000 | ||||||||||||
Total | $ | 70,123,000 | $ | 24,853,000 | $ | 0 | $ | 94,976,000 | ||||||||
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equities | $ | 12,149,000 | $ | — | $ | — | $ | 12,149,000 | ||||||||
Mutual Funds | 5,337,000 | — | — | 5,337,000 | ||||||||||||
Exchange-Traded Funds | 4,794,000 | — | — | 4,794,000 | ||||||||||||
Corporate Bonds | — | 37,339,000 | — | 37,339,000 | ||||||||||||
Government Securities | 29,327,000 | — | — | 29,327,000 | ||||||||||||
Cash and Money Funds | 354,000 | — | — | 354,000 | ||||||||||||
Total | $ | 51,961,000 | $ | 37,339,000 | $ | — | $ | 89,300,000 | ||||||||
| December 31, 2022 | September 30, 2022 | |||||||
Raw materials | $ | 35,085,000 | $ | 31,975,000 | ||||
Work in process | 14,545,000 | 13,903,000 | ||||||
Finished goods | 9,685,000 | 9,937,000 | ||||||
| $ | 59,315,000 | $ | 55,815,000 | |||||
| March 31, 2022 | September 30, 2021 | |||||||
Raw materials | $ | 29,847,000 | $ | 25,858,000 | ||||
Work in process | 7,858,000 | 6,280,000 | ||||||
Finished goods | 9,517,000 | 9,730,000 | ||||||
Used equipment | 0 | 20,000 | ||||||
| $ | 47,222,000 | $ | 41,888,000 | |||||
December 31, 2022 | September 30, 2022 | |||||||
Costs incurred on uncompleted contracts | $ | 17,613,000 | $ | 12,660,000 | ||||
Estimated earnings | 7,155,000 | 4,780,000 | ||||||
| 24,768,000 | 17,440,000 | |||||||
Billings to date | 19,818,000 | 15,322,000 | ||||||
Costs and estimated earnings in excess of billings | $ | 4,950,000 | $ | 2,118,000 | ||||
| March 31, 2022 | September 30, 2021 | |||||||
Costs incurred on uncompleted contracts | $ | 19,501,000 | $ | 11,483,000 | ||||
Estimated earnings | 5,875,000 | 4,395,000 | ||||||
| 25,376,000 | 15,878,000 | |||||||
Billings to date | 23,747,000 | 13,975,000 | ||||||
Costs and estimated earnings in excess of billings | $ | 1,629,000 | $ | 1,903,000 | ||||
| Quarter Ended March 31, | Six Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Net Income | $ | 439,000 | $ | 2,288,000 | $ | 165,000 | $ | 3,839,000 | ||||||||
Common Shares: | ||||||||||||||||
Weighted average common shares outstanding | 14,658,000 | 14,614,000 | 14,658,000 | 14,611,000 | ||||||||||||
Effect of dilutive stock options | 0 | 133,000 | 0 | 129,000 | ||||||||||||
Diluted shares outstanding | 14,658,000 | 14,747,000 | 14,658,000 | 14,740,000 | ||||||||||||
Basic: | ||||||||||||||||
Net income per share | $ | 0.03 | $ | 0.16 | $ | 0.01 | $ | 0.26 | ||||||||
Diluted: | ||||||||||||||||
Net income per share | $ | 0.03 | $ | 0.16 | $ | 0.01 | $ | 0.26 | ||||||||
Quarter Ended December 31, | ||||||||
2022 | 2021 | |||||||
Net Income (loss) | $ | 3,476,000 | $ | (274,000 | ) | |||
Common Shares: | ||||||||
Weighted average common shares outstanding | 14,657,000 | 14,617,000 | ||||||
| Effect of dilutive stock options (none) | — | — | ||||||
Diluted shares outstanding | 14,657,000 | 14,617,000 | ||||||
Basic: | ||||||||
Net income (loss) per share | $ | 0.24 | $ | (0.02 | ) | |||
| Diluted: | ||||||||
Net income (loss) per share | $ | 0.24 | $ | (0.02 | ) | |||
| Quarter Ended March 31, | Six Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Equipment sales recognized over time | $ | 10,998,000 | $ | 3,870,000 | $ | 20,772,000 | $ | 8,002,000 | ||||||||
Equipment sales recognized at a point in time | 10,475,000 | 9,565,000 | 14,673,000 | 19,701,000 | ||||||||||||
Parts and component sales | 7,381,000 | 6,830,000 | 12,824,000 | 10,761,000 | ||||||||||||
Freight revenue | 1,495,000 | 1,147,000 | 2,079,000 | 1,892,000 | ||||||||||||
Other | 305,000 | (60,000 | ) | 412,000 | (40,000 | ) | ||||||||||
Net revenue | $ | 30,654,000 | $ | 21,352,000 | $ | 50,760,000 | $ | 40,316,000 | ||||||||
| Quarter Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
Equipment sales recognized over time | $ | 7,329,000 | $ | 9,774,000 | ||||
Equipment sales recognized at a point in time | 11,498,000 | 4,198,000 | ||||||
Parts and component sales | 5,901,000 | 5,443,000 | ||||||
Freight revenue | 1,046,000 | 584,000 | ||||||
Other | 51,000 | 107,000 | ||||||
Net revenue | $ | 25,825,000 | $ | 20,106,000 | ||||
| March 31, 2022 | September 30, 2021 | |||||||
Operating lease ROU asset included in other long-term assets | $ | 596,000 | $ | 785,000 | ||||
Current operating lease liability | 407,000 | 393,000 | ||||||
Non-current operating lease liability | 189,000 | 392,000 | ||||||
Weighted average remaining lease term (in years) | 1.50 | 2.00 | ||||||
Weighted average discount rate used in calculating ROU asset | 4.0 | % | 4.0 | % | ||||
| December 31, 2022 | September 30, 2022 | |||||||
Operating lease ROU asset included in other long-term assets | $ | 293,000 | $ | 396,000 | ||||
Current operating lease liability | $ | 293,000 | $ | 390,000 | ||||
Non-current operating lease liability | $ | — | $ | 6,000 | ||||
Weighted average remaining lease term (in years) | 0.75 | 1.00 | ||||||
Weighted average discount rate used in calculating ROU asset | 4.0 | % | 4.0 | % | ||||
Fiscal Year | Annual Lease Payments | |||
2022 (remaining 6 months) | $ | 210,000 | ||
2023 | 398,000 | |||
2024 | 6,000 | |||
Total | 614,000 | |||
Less interest | (18,000 | ) | ||
Present value of lease liabilities | $ | 596,000 | ||
Fiscal Year | Annual Lease Payments | |||
| 2023 (remaining nine months) | $ | 298,000 | ||
Less interest | (5,000 | ) | ||
Present value of lease liabilities | $ | 293,000 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report contains certain “forward-looking statements” within the meaning of the Exchange Act, which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company’s products.
For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form
Overview
Gencor is a leading manufacturer of heavy machinery used in the productiondesigns, manufactures and application of highway construction materials and environmental control equipment. The Company’s core products includesells hot mix asphalt plants, combustion systems, fluid heat transfer systems and asphalt pavers.pavers for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at three facilities in the United States.
Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company’s customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company’s products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company’s products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of liquid asphalt, and a trend towards larger more efficient asphalt plants.
On November 15, 2021, President Biden signed into law a five-year, $1.2 trillion infrastructure bill, the Infrastructure Investment and Jobs Act (the “IIJ Act”), including $550 billion in new spending and reauthorization of $650 billion in previously allocated funds. The IIJ Act provides $110 billion for the nation’s highways, bridges and roads.
Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company’s equipment, may affect the Company’s financial performance. The Company is subject to fluctuations in market prices for raw materials, such as steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.
Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.
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COVID-19
The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the coronavirus
Global, market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals.
Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition
Beginning in 2022, the TCJA eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years pursuant to IRC Section 174. In the future, Congress may consider legislation that would eliminate the capitalization and amortization requirement. There is no assurance that the requirement will be deferred, repealed or otherwise modified. The requirement is effective for the Company’s fiscal year 2023, beginning October 1, 2022. The Company will continue to make additional estimated federal tax payments based on the current Section 174 tax law. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred and whether the IRS issues guidance on the provision which differs from our current interpretation.
Results of Operations
Quarter Ended MarchDecember 31, 2022 versus MarchDecember 31, 2021
Net revenues for the quarters ended MarchDecember 31, 2022 and MarchDecember 31, 2021 were $30,654,000$25,825,000 and $21,352,000,$20,106,000, respectively, an increase of $9,302,000.$5,719,000 or 28.4%. The increasedimproved revenues reflect the impact of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into lawwere in November 2021.
As a percent of sales, gross profit margins were 20.2%improved to 22.5% in the quarter ended MarchDecember 31, 2022, compared to 28.8%18.4% in the quarter ended MarchDecember 31, 2021. During the quarter ended March 31, 2022, the Company continued to experience higher manufacturing costs associated with wages, steel2021 on increased production and OEM parts pricing.
Product engineering and development expenses decreased $149,000$452,000 to $920,000$897,000 for the quarter ended MarchDecember 31, 2022, as compared to $1,069,000$1,349,000 for the quarter ended MarchDecember 31, 2021, due primarily to reduced wages and benefits on lower headcount. Selling, general and administrative (“SG&A”) expenses decreased by $474,000$600,000 to $3,364,000$2,799,000 for the quarter ended MarchDecember 31, 2022, compared to $3,838,000$3,399,000 for the quarter ended MarchDecember 31, 2021. The higher fiscal 2021decrease in SG&A expenses werewas primarily due to reduced wages and benefits on lower headcount and reduced professional fees to support business development efforts.expenses.
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For the quarter ended MarchDecember 31, 2022, interest and dividendthe Company had net non-operating income net of fees, was $296,000 as$2,455,000 compared to $327,000 in the quarter ended March 31, 2021. The net realized and unrealized losses on marketable securities were $(1,488,000)$700,000 for the quarter ended MarchDecember 31, 2021. Included in net non-operating income for the quarter ended December 31, 2022 versuswere net realized and unrealized gains on marketable securities of $1,294,000$1,962,000 compared to $423,000 for the quarter ended MarchDecember 31, 2021. The higher gains in fiscal 2022 investment losses reflect the decline in equity markets2023 were due to higher interest rates, inflation, anda stronger domestic stock market during the Federal Reserve’s recent monetary tightening policy.
The effective income tax rates for the quarters ended MarchDecember 31, 2022 and MarchDecember 31, 2021 were 24.2%24.0% and 20.0%, respectively, based onrespectively. The higher tax rate in fiscal 2023 is due to an anticipated reduction in research and development tax credits, effective for the expected annual effective income tax rate.
Liquidity and Capital Resources
The Company generates capital resources through operations and returns on its investments.
The Company had no long-term or short-term debt outstanding at MarchDecember 31, 2022 or September 30, 2021.2022. As of MarchDecember 31, 2022, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs. In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2023, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
As of MarchDecember 31, 2022, the Company had $22,571,000$5,978,000 in cash and cash equivalents, and $94,501,000$91,718,000 in marketable securities, including $24,022,000$36,697,000 in corporate bonds, $19,998,000$5,524,000 in equities, $10,130,000$5,423,000 in mutual funds, $9,849,000$4,825,000 in exchange-traded funds, $27,960,000$33,925,000 in government securities, and $2,542,000$5,324,000 in cash and money funds. The marketable securities are invested through a professional investment management firm. These securities may be liquidated at any time into cash and cash equivalents.
The Company’s backlog was $44.9$42.5 million at MarchDecember 31, 2022 compared to $42.6$58.0 million at MarchDecember 31, 2021. The Company’s working capital (defined as current assets less current liabilities) was $154.7$154.3 million at MarchDecember 31, 2022 and $155.4$150.1 million at September 30, 2021.2022. Cash provided byflows used in operations during the six monthsquarter ended MarchDecember 31, 2022, was $1,045,000.were $2,898,000. The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows, reflect the recurring purchases and sales of United States treasury bills. Accounts receivable increased $1,738,000 compared to September 30, 2022, primarily from increased paver and parts sales. Costs and estimated earnings in excess of billings increased $2,832,000 with the timing of inventory build and percentage of completion recognition on plant sales where revenue is recognized over time. Inventories increased by $5.3 million$3,500,000 due to progress on several large contract orders where revenue is recognized at a point in time and some stock build to compensate for the increasing lead times from suppliers. Prepaid expenses increased $1.6 million due to estimated income tax deposits in excess of accrued income taxes, annual insurance contract renewals as well as deposits made on new equipment. Customer deposits increased by $5.0 million$2,523,000 reflecting down payments and final payments on contract jobs including several recent orders where revenues are recognized over time but work isnot yet to begin.
Cash flows used in investing activities for the six monthsquarter ended MarchDecember 31, 2022 of $1,706,000$705,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.
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Seasonality
The Company’s primary business is the manufacture of asphalt plants and related components and asphalt pavers. These products typically experience a seasonal slowdown during the third and fourth quarters of the calendar year. This slowdown often results in lower reported sales and operating results during the first and fourth quarters of the fiscal year ended September 30.
Critical Accounting Policies, Estimates and Assumptions
The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form
Estimates and Assumptions
In preparing the condensed consolidated financial statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the condensed consolidated financial statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.
Revenues & Expenses
The Company recognizes revenue under ASU
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $1,629,000$4,950,000 and $1,903,000$2,118,000 at MarchDecember 31, 2022 and September 30, 2021,2022, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets. The Company anticipates that all of the contract assets at MarchDecember 31, 2022, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers for equipment sales were $130,000$133,000 and $210,000$142,000 at MarchDecember 31, 2022 and September 30, 2021,2022, respectively.
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Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at MarchDecember 31, 2022 and September 30, 2021.2022. Customer deposits related to contracts with customers were $10,286,000$8,387,000 and $5,244,000$5,864,000 at MarchDecember 31, 2022 and September 30, 2021,2022, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
Marketable Securities and Fair Value Measurements
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and (losses) on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Net unrealized gains and (losses) are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.
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Long-Lived Asset Impairment
Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined using a discounted cash flow analysis.
Off-Balance
None
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s President (who is currently serving as the Company’s Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule
Because of inherent limitations, the Company’s disclosure controls and procedures, no matter how well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met, and no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
The Company’s management, including the President and Chief Financial Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter and six months ended MarchDecember 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.
Item 1A. Risk Factors
Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10K for the year ended September 30, 2021,2022, as filed with the SEC on December 17, 2021,16, 2022, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form
Changes in our business, financial condition and share price.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years pursuant to operate efficientlyIRC Section 174. In the future, Congress may consider legislation that would eliminate the capitalization and timely complete our operational goals.amortization requirement. There is no assurance that the requirement will be deferred, repealed or otherwise modified. The requirement is effective for the Company’s fiscal year 2023, beginning October 1, 2022. The Company will continue to make additional estimated federal tax payments based on the current Section 174 tax law. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred and whether the IRS issues guidance on the provision which differs from the Company’s current interpretation.
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Item 6. Exhibits
| Exhibit 31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended | |
| Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended | |
| Exhibit 32 | Certifications of Principal Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350 | |
| Exhibit 101.1 | Interactive Data File | |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||
| XBRL Schema Document | ||
| XBRL Calculation Linkbase Document | ||
| XBRL Definition Linkbase Document | ||
| XBRL Label Linkbase Document | ||
| XBRL Presentation Linkbase Document | ||
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended | ||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| GENCOR INDUSTRIES, INC. |
/s/ Marc G. Elliott |
| Marc G. Elliott |
| President |
| (Principal Executive Officer) |
/s/ Eric E. Mellen |
| Eric E. Mellen |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
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